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September 17, 2015

The economics of authoritarianism

Suat Kınıklıoğlu

Not a day passes by without Turkey hearing of a raid on a school, a business group or a newspaper.
It seems those who make these decisions are frantically trying to stem the growing reaction to what is going on in this country. We are witnessing an attempt to show to the public that their strength is still in place. However, the desperation of these raids suggests otherwise. They prove rather counterproductive.

Raiding the Boydak Group, one of the Anatolian tigers that made Anatolia's economic success story possible, will prove to be a fundamental blunder. One of the most popular families in Kayseri, the Boydaks employ 14,000 people. Also, Mr. Boydak is a member of the board of the Turkish Industrialists and Businessmen's Association (TÜSİAD). TÜSİAD Chairwoman Cansen Başaran-Symes' statement on behalf of the TÜSİAD board was timely and direct. It expressed “a major concern and gloom in the business world” and called for an “end to this dark path.”

It is appropriate for TÜSİAD to voice its concern in a clear tone, although there were speculations that some members opposed the issuing of such a statement. Nevertheless, on an institutional level TÜSİAD has reacted in a proper form and fashion. TÜSİAD has voiced an overriding concern in the business community that the ongoing witch hunt against businesses groups is politically motivated and simply unacceptable. The timing of the operation on the Boydak Group seems to be aimed at giving the business community a warning.

Turkey experienced a remarkable economic growth story from 2002 to 2010. The Turkish economy moved from a low-income one to a middle-income economy. Within a time span of five years Turkish per capita income tripled. Foreign direct investment into the Turkish economy exponentially grew to record levels. How did that become possible? As Daron Acemoğlu in his renowned book “Why Nations Fail” underlines, economic success stories can only become possible when the rule of law is upheld, institutions function properly and freedoms are expanded within society. (Daron Acemoğlu and James Robinson, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” (2012), Deckle Edge Publishing)

Unfortunately, we know the extremely unhealthy turnaround to an authoritarian state since 2011 which has dampened Turkey's economy. Hit by an adventurous Middle East policy, Turkey's export markets have been cut down. Increasing authoritarianism, intense pressure on the media and the curtailing of free speech has poisoned Turkey's internal peace. Pressure on business groups such as Bank Asya, the İpek Group and the Boydak Group have scared off foreign investors. The Turkish lira has hit record low figures, making it very difficult for businesses to finance their loans. Consumer demand is down and banks are grappling with an increasing number of default loans. While we debated a few years ago how Turkey could get out of the middle income trap, we are now discussing whether we will be able to stay within the G-20 next year.

The cost of the Presidency's insistence on running this country from the palace despite the Constitution does not only have political consequences. It also has a strong economic impact which touches the ordinary citizen directly. The ongoing violence in the Southeast is likely to further demoralize the prospects for any exit strategy out of this misery. Therefore, so much has been placed on the line in the Nov. 1 election. The outcome of this election will have significant meaning for our economy. We remain hopeful that the Turkish electorate will demonstrate its wisdom to prevent the further sliding of the Turkish economy.

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